Showing posts with label CAGR. Show all posts
Showing posts with label CAGR. Show all posts

Tuesday, March 5, 2013

Way past their vacation time!

The tax holiday provided to Indian IT companies at the dawn of this century was historic and path breaking, as it enabled the industry to reach the enviable stature that it enjoys today. But retaining this tax holiday doesn’t make sense from a futuristic perspective by Ashutosh Harbola

It was one of the few instances when the Indian government actually played a key role as an enabler for business. The tax holiday given under the Sunset Clause u/s 10A and 10B of the Income Tax Act for companies operating under Software Technology Parks of India (STPI), which provided massive exemptions for the IT industry in India, was launched in the heydays of the dotcom boom in 2000-01. The incentives were available for providing software and IT enabled services for 100% exports including exports of physical services and included exemption in custom & excise duty, reimbursement of Central Sales Tax and exemption in corporate tax on 90% of export turnover (applicable for a 10-year period).

The dotcom boom fizzled out, but the tax holiday has been a major component of India’s success as a global outsourcing hub, making more than 8000-odd IT units more competitive. In 1990, the Indian IT industry generated a mere $150 million in software and computer-related services. In FY 2008-09, the Indian IT-BPO sector had reached $71.7 billion in aggregate revenue. Software and services exports (includes exports of IT services, BPO, Engineering Services and R&D and Software products) reached $47 billion, contributing nearly 66% to the overall IT-BPO revenue aggregate.

Ever since the golden decade came to an end in 2009, a debate has been raging on whether it needs to end at all. IT companies pressed for an extension by three years, but were granted only one. In the 2010 budget session, Finance Minister Pranab Mukherjee declared that the holiday will not be extended. Industry association NASSCOM and a number of players feel this will seriously hamper India’s competitiveness. Arvind Goyal , Director-Finance, Pitney Bowes India Pvt. Ltd. cautions that this will also reduce India’s attractiveness as he says, “Local duties and tax structure do play a. vital role in swaying decisions of global IT players in favor or against of setting up captive center in one of the countries.” Infosys Chief Mentor Narayana Murthy however feels that the extension isn’t needed from Infosys’ perspective.

It’s been almost 20 years since the sector has been awarded some or the other kind of benefits. These benefits made sense when the industry was at a nascent stage. In 2009, IT services alone have grown up from $13.5 billion to $35.2 billion since 2005 with exports contributing 76% (CAGR of 32% in 2000-2009 period). Direct employment in Indian IT-BPO sector crossed the 2.2 million mark, an increase of about 226,000 professionals over FY 2008 and indirect job creation is estimated at about 8 million. As a proportion of national GDP, the sector’s revenues have grown from 1.2% in FY1998 to an estimated 5.8% in FY2009. Net value-added by this sector, to the economy, is estimated at 3.5-4.1% for FY 2009.


Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
 
For More IIPM Info, Visit below mentioned IIPM articles

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Saturday, July 7, 2012

“We need to update our education system for the long term”

Raman Roy, the man termed ‘the father of the India BPO revolution’, speaks candidly to B&E on what it will take for India to keep its leadership position intact in the sector

Raman Roy is better known as ‘father of Indian BPO’. He started the BPO project as a lab case while working for American Express in the mid-80s. The idea was to showcase to the world how quality work can be done at a cost-effective price from India. Since then he moved on to set-up leading BPO companies like Genpact and Spectramind. His latest obsession these days is promoting high-end outsourcing work at his new venture Quatrro. He talks to B&E’s ONKAR PANDEY, on where he sees the industry headed:

B&E: What was the idea and vision that you had when you almost single handedly started out the BPO operation in India at American Express in late 80s?
RR: When I started 25 years ago, nobody knew that it would become the phenomena that it has become. That time, I was only trying to do the right thing for my employer American Express; telling them that it can be processed from India. The aim was to showcase that the Indian workforce was equally competent and capable as the international workforce, and not about becoming an industry and creating companies to do such stuff. As we groomed it, it became an aspect of our cost-saving, higher quality, an aspect of revenue and job creation potential. All those were the learnings we acquired.

B&E: How do you look at the evolution of the industry over these 25 years?
RR: The Indian BPO story started in the mid-80s when we did the experimentation. And it became a buzzword by the turn of century, with companies like SpectraMind and IBM Daksh taking the lead. Over that initial period, it grew in its ability to be able to offer jobs and create a disposable income. We actually created a class of people for whom it created a disposable income and their family’s income has gone up. Even today I met somebody, who was telling me that in his village, the average income was less than Rs.2000. And he sends home Rs.4000 today out of his earning of Rs.15000 and his family is doing very well. All such aspects came into prominence, because everyone saw the jobs being created and saw the impact that the industry was making on its workforce. But then we started to only showcase what can be done from India, and not on job creation.

B&E: The industry has gone through a phase of growth and seems to be slowing down now. How do you look at the current state of the industry and the growth model here onwards?
RR: I think that the aspect of labour arbitrage is a reality now. And that is a business model. A commoditised product is a business model. There are people who are making money from sale of sugar, wheat and ghee like commodities. The commoditised model is a low cost model, where the winner is the lowest cost provider. And there will be parts of this industry that will continue to operate in that segment, and continue to be cost competitive and have the quality too. And on the other side, there will be people who will bring in domain knowledge, technology and capability and take it to what we call the KPO industry today. So both of these will co-exist, and put together, it will be at a size and scale where 20-30% growth rate per annum will be a non-issue.

B&E: Talent crunch, high attrition rates and decreasing cost-competitiveness of Indian BPO companies vis-a-vis Philippines, Vietnam, China, et al are a cause for concern. Is the Indian BPO dream turning sour?
RR: The reason why these countries came into being was because there is redundancy that is needed. Secondly, we don’t have enough people. If we have 100,000 more people today, the BPO industry will absorb them in 20-30 days. Attrition is a symptom of the talent crunch. Employees are not leaving the industry to join other industries. These are mostly company level attritions, due to a shortage of people. The industry attrition is 5 -7% due to things like night shift, marriage, change of cities, et al; and that is a good and healthy attrition to have. When we put an advertisement in the paper, we get 8000-10,000 applications, but we recruit only 200. So there is lot of demand for the industry. The quality of graduates produced in our universities doesn’t meet the international needs. In fact, many a graduate are working as drivers in call centres, and that is an injustice to their qualification. If talent supply increases, the attrition problem will go away.

B&E: How do you see the change of guards in the industry, with visionaries giving way to process managers?
RR: Large independent players continue to lead. Evolution and change in leadership is a given in any industry. Today, we are almost $15-16 billion dollar industry. It’s bigger than Bollywood, and even employs more people. The priorities are changing and the leadership is undergoing a change; it’s a new phenomenon in the world. In old days, there used to be one employer. They never thought of changing companies due to lack of opportunities. Now, there are more companies and people change jobs more frequently. So it’s an evolution of the job market in the country. The government today likes to listen to us unlike the early days. Even the media listens to us. The industry is growing at 30% CAGR, so we can’t say that the new leaders are not doing effective work. They are very good.

B&E: How did the slowdown affect the BPO industry? Did the companies have to re-adjust their growth model?
RR: The slowdown impacts discretionary work. A lot of BPO work is non-discretionary (almost 80%). For instance, if one has to get a call he will get it anyway. A very small sliver of the industry is discretionary work that goes down due to cost-cutting. So slowdown hasn’t affected the industry, though growth could have been more robust
.

Source : IIPM Editorial, 2012.

An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles.

IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM's Management Consulting Arm-Planman Consulting
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